Making a Freemium Model Work for Your Business

In today’s digital age, consumers and businesses alike are inundated with new tools that promise to make their lives and jobs easier, more efficient, more sustainable and more fun. But in a world in which software-as-a-service (SaaS) tools and cloud-based apps are as plentiful as grains of sand at the beach, consumers have nearly limitless buying options. Why should they choose yours? How can you rise above the noise and break through to new prospects?

As founder of a SaaS company myself, I’ve wrestled with all of these questions. One strategy my company recently implemented is already paying great dividends: offering a completely free, no-strings-attached product to our current and prospective users called Datanyze Insider. Based on my own experience, here are four reasons why it is smart for a for-profit SaaS company to offer a free product:

Put Your Users in the Driver’s Seat

Many SaaS companies struggle to choose between a limited time offer and a free product. While companies that choose to offer a free trial can share the full depth and breadth of their product with users off the bat, they often face challenges in overcoming the initial sign-up barrier. To keep track of free trials, users are generally asked to provide details such as credit card information, which can be a real deal-breaker. Psychologically, many people would rather register for a completely free product—even if it is scaled down—that can be used indefinitely. The user can then choose if and when s/he wants to upgrade and access additional capabilities and tools. Additionally, offering a free product can bring in new users who may not be inclined to sign up for a demo promoted on a website, by allowing them to test it out on their own time and in their own way. By offering a completely free product, you put your users in the driver’s seat—exactly where they want to be.

Diversify Your Audience

Offering a free product can help you capture new audiences and expand into previously untapped industries. For example, in the first two weeks of unveiling a free Google Chrome extension, my company tracked a number of registrants in entirely new markets for us—from human resources and public relations professionals to technology analysts. A free product can be the quickest, most effective way to exponentially grow your database of warm leads.

Related Article: Avoid a Freemium Flop

Cultivate Strong Brand Advocates

Vineet Kumar, assistant professor of marketing at Harvard Business School, has done extensive research on freemium models, and has found that “a free user is typically worth 15 to 25 percent as much as a premium subscriber, with significant value stemming from referrals.” He suggests that companies focus on referral incentives and prioritize ongoing communication to increase the value of these referrals. Satisfied users are your strongest brand advocates, so it’s important to listen closely to find out what they like and why, then engage with and encourage them to share their positive experiences with their colleagues and friends across social networks.

You’ll Have a Lead-Gen Program All Your Own

Your company is unique, innovative and going places fast! So why rely on companies who sell or rent questionable lists or keep going back to a stale list from an event that took place two years ago? A free product can serve as an invaluable lead generation program that is uniquely yours. No one else can offer what you can. Take full advantage of that.

In closing, it’s important to remember that savvy companies use their free product not only as a powerful way to diversify audiences and deepen their potential customer pools, but also to demonstrate their commitment to continued innovation. A free product will undoubtedly get users in the door, but it’s up to you to develop new, compelling offerings that will tip the scales and prompt them to move from freemium to premium tools, and ultimately, become loyal, long-term customers and brand advocates.

Author: Ilya Semin is the founder and CEO of Datanyze, the all-in-one sales intelligence platform.